Natural Resource Fund… Rigid withdrawal rules prevent account from becoming slush fund

Natural Resource Fund… Rigid withdrawal rules prevent account from becoming slush fund – Finance Minister

Oct 05, 2019 News

The rigid rules laid out in the Natural Resource Fund (NRF) Act for withdrawals from the Fund are there to ensure that it does not become a slush fund.
Explaining this in a letter to Kaieteur News is Minister of Finance, Winston Jordan, who wrote that he is proud of how strict the rules are. He said that the Act’s strict rules and public oversight will safeguard against the wasteful spending or misappropriation of oil revenues.Minister Jordan’s letter is in response to a Kaieteur News article on the International Monetary Fund’s Article IV Consultation Report, in which the anti-corruption body states that Ghana’s Petroleum Revenue Management Act (PRMA) sets out a legal framework that was so rigid that it did not allow the Ghanaian Government to use the Petroleum funds to accommodate unexpected, large financial shocks.
The IMF also pointed out that Ghana’s PRMA and Guyana’s NRF Act are noticeably similar.
In defense of the NRF Act, Jordan posited that it was not imported from anywhere, but that it was grounded in an assessment of Guyana’s situation, and the investment necessary to transform the economy.
The Minister pointed out that there are no borrowing rules in the Act, rather, there are withdrawal rules, which can be found in Part VI and Part VII of the NRF Act.

Minister of Finance, Winston Jordan

In determining how much money can be withdrawn from the Fund in a given year, the Minister stated that an ‘Economically and Fiscally Sustainable Amount’ is denoted, bound by a separate Economically Sustainable Amount (ESA) and a Fiscally Sustainable Amount (FSA).
The former is determined by the Minister based on advice by a macro-economic committee which comprises representatives of the Government, Bank of Guyana, Private Sector Commission (PSC) and Leader of the Opposition, as well as an international macroeconomic expert, with consideration for how additional spending will affect Guyana’s economic competitiveness.
He said that the Committee is expected to consider inflation, the exchange rate, economic growth, the composition of public spending, stability in public spending, public debt, and other key variables. To ensure, that Committee’s recommendation is included in Government’s annual budget proposal and annual NRF report, for public scrutiny, he wrote.
As for the FSA, Minister Jordan stated that it is determined by the use of a mathematical formula included in the First Schedule of the NRF Act, setting an upper limit on withdrawals.
In relating Ghana’s experience to the Guyanese authorities, the IMF had stated that the African oil producer had been forced to finance deficits by putting itself in debt. Minister Jordan addressed that, stating that the macro-economic committee is explicitly required to consider public debt.
He said that human and physical infrastructural gaps that exist are considered, and projects contemplated to fix those gaps. Also considered, Jordan posited, are the Government’s ability to execute those projects and the absorptive capacity of the economy.
“The rule allows for the frontloading of expenditure in the short- to medium-run, with an eventual transition to a Norway-type rule, where only the expected interest earnings from the NRF are available for withdrawal. This transition is expected in six to 10 years, but the timing is dependent on oil prices and the pace of oil production.” The Minister stated.
He then explained that the costs of certain projects contemplated by Government fall well within the ballpark of the amount stated by the IMF will be available to Guyana in the first five years of oil production.
Acknowledging that Government’s may not always be responsible in its management, Minister Jordan said that a Public Debt Management Bill is being finalised, intended to deter irresponsible borrowing.

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